Manufacturer with most UK employees bucks the trend while Rolls and Airbus panic
While Rolls-Royce and Airbus used this week’s Farnborough International Airshow to warn of the dire consequences of a hard Brexit, Britain’s biggest defence firm, BAE Systems, simply shrugged its shoulders.
The business is Britain’s biggest manufacturing employer, with 34,000 staff and sales of nearly £20bn last year. But Brexit? “It’s just not that big a deal [for us],” reckons the firm that makes everything from ammunition to combat aircraft and submarines.
Its statement is wildly at odds with other major firms operating in the industrial world. The European plane maker Airbus is already stockpiling parts in preparation for a no-deal Brexit, and the aircraft engine manufacturer Rolls-Royce admitted this week that it is making plans to do the same.
Jaguar Land Rover, Britain’s biggest car manufacturer, has warned that £80bn of planned UK investment over the next five years would be at risk if Britain struck a bad Brexit deal. Meanwhile the wider UK car industry has been sounding the alarm on Brexit since well before the referendum.
Not so at BAE, which says frictionless trade once the UK has left the EU would be a good thing but has otherwise kept fairly quiet despite its dominant position.
There are a couple of key reasons for the apparent nonchalance: first, BAE is predominantly a UK-US company. It has little direct trade with countries in the EU, despite earnings from sales abroad totalling £4.7bn.
Second, it is a low-volume producer of high-value defence kit, unlike the car companies which are high-volume manufacturers heavily reliant on just-in-time delivery of parts where holdups of just a few hours at customs could seriously disrupt production schedules.
The average UK-built car has about 6,000 parts, the majority of which come from the EU, according to the Society of Motor Manufacturers and Traders. Parts can pass back and forth across the Channel several times for various processes before reaching the UK.
At Airbus’s factory in Broughton, north Wales, wings are built for all commercial aircraft before being transported to other Airbus factories outside the UK, including its headquarters in Toulouse, France.
“As we have relatively limited trade with the EU, the resulting impact of Brexit on our business is likely to be limited, depending on the terms of any transition and final agreements,” a spokeswoman for BAE said.
“However, we, like all businesses, want to see progress in the negotiations between the government and the European commission to give us all certainty,” she added.
BAE employs 83,200 people globally, mainly in four hubs, the only one inside the EU being the UK. In the UK it employs 34,300 people and it has no factories elsewhere in Europe. The other three hubs are in Saudi Arabia , Australia and the US – where it employs 29,100 people and which accounts for about 40% of overall business.
When BAE won a £20bn contract last month to build Australia’s fleet of new navy frigates, it was seized upon by Theresa May as an example of how the UK might now build on its close relationships with allies such as Australia. But the nine new Hunter class shipswill be built in Adelaide and the 4,000 new jobs created to build the vessels will be in Australia.
Even the Eurofighter Typhoon – Europe’s largest collaborative defence programme – is basically Brexit-proof. BAE is a consortium member alongside Leonardo and a division of Airbus, and the programme is a four-partner nation deal between Germany, Spain, Italy and UK. It is therefore outside the EU.
George Salmon, an analyst at Hargreaves Lansdown, said that while it would not be right to say Brexit poses absolutely zero threat to BAE, it is clearly a lot less threatened than others.
“There’s a simple reason BAE is not forecasting the same level of disruption as others. Its main customers are the US, Saudi Arabia and the UK, with Europe only responsible for 8% of its revenues last year.
“On the other hand, Rolls-Royce depends on European nations for over 18% of its sales. Combine that with the comments that have come out of Airbus, a big customer of Rolls, and it’s easy to see why the group would be monitoring the progress of the Brexit negotiations with interest.”